Generally, there are three types of mortgage loans that you will have access
to… fixed-rate mortgages, adjustable-rate or balloon mortgages, and government
loans. Each type has its own advantages and disadvantages, as well as unique
loan options.
Fixed-Rate
A fixed-rate mortgage is a loan that’s made with a locked-in interest rate,
meaning that no matter how much the real estate market may fluctuate you’ll be
paying the same amount for the entire time you’re paying back your loan. If you
lock in a low rate now on a 20-year loan, then 20 years from now you’ll be
paying that same rate no matter how much the interest rates have risen. On the
down side, if you lock in a rate and interest rates fall, you’re still paying
that same amount that you locked in.
Fixed-rate mortgages come in 15-year, 20-year, and 30-year options, with
15-year and 20-year having the highest payments but lower taxes, and 30-year
having lower payments but higher taxes. The 30-year mortgage is also usually
the easiest to qualify for.
Adjustable-Rate or Balloon
An adjustable-rate mortgage has an interest rate that fluctuates depending
upon national rates and market trends. The rate that you pay changes at regular
intervals depending upon the type of loan that you have, as well as caps that
are in place on the maximum amount you’ll have to pay based upon increased
interest rates. There is usually initial period of time in which the rate will
not change, and once it has passed then your rate may change every 6 months, 1
year, 2 years, or more, depending upon the terms of your mortgage.
A balloon mortgage is a bit different, in that it offers fixed lower
interest rates than most fixed-rate mortgages for 5 to 7 years and then you are
required to make a “balloon” payment that pays off the mortgage in its
entirety. Monthly payments tend to be low, though there is the large payment at
the end… however, if you plan on refinancing or selling the property before the
balloon payment is due then this is probably your best bet.
Government Loans
Government loans tend to offer much lower interest rates, though you usually
have to meet certain standards to qualify for the loans. They are designed to
help low-income individuals, veterans, and those living in rural areas to own
their own homes. Most government loans are processed either through the Federal
Housing Administration, the Veterans Administration, or the Rural Housing Service.
Each group has their own qualifications and rules concerning loans that they
make, so you should consult the appropriate agency to make sure that you
qualify.